Was Sprint Buying Nextel One Of The Worst Acquisitions Ever At $35b?

It was a terrible deal, not as bad as AOL and Time Warner for capital destruction, but definitely right up there as an excellent example of M&A gone wrong. With that said, I think it's better to look at Sprint's trouble over most of the last decade as a series of missteps, rather than a catastrophe caused by Nextel.

Bad Networks - iDEN, WiMAX

Wrong Marquee Phone - Palm Pre

Also, as of November 2012, given the impending Softbank takeover, Sprint is actually in a good spot. [Disclosure - I hold Sprint stock]

Disconnected from the Start -

In 2005 when the merger was accepted both Sprint and Nextel had market caps around $30B. As such, it was viewed as a "merger of equals." Take a look at these logos:

Which shortly after the merger, became this:

As a customer it was confusing, but it was also a signal of the dissonance within the organization. Both companies retained their respective headquarters with Sprint in Overland Park, KS and Nextel in Reston, VA. Being the obvious second fiddle, Nextel execs left in droves. By early 2008, $30B of the deal had been written down by Sprint. Their market cap had enjoyed a few years in the sun getting as high as $76B in March 2006 (1).

Incompatible Networks + Ugly Phones = Bad Bets -

There was no overlap for the iDEN and CDMA networks, and needless to say, iDEN has never been a consumer friendly. Here's a shot of one of the few dual mode handsets that took advantage of the added spectrum:

Not exactly the belle of the ball. Ultimately, Sprint was late to the party with a number of handsets and backed the wrong horses:

Because of course, who needs iPhones or flagship Android devices when you could pick up a Palm Pre...

I will give them a ton of credit for the 2010 EVO 4G, that was an excellent device and it sold as such. I do hold a bit of bias as I owned every HTC flagship that was released from 2002 to 2011, yet another Sprint misstep broke that chain. That 2011 flagship was the EVO 3D, the buggiest phone I've ever owned that was the bulkiest in its class. They quickly found out that nobody cares about 3D, especially on a 4.3" screen.

While the EVO 4G was good it, did lead another bad bet that they've paid for dearly for, WiMax. Note that ATT didn't have LTE, and TMO is on HSPA+ (2).

Sprint's WiMax wasn't faster than T-Mobile's "fake" 4G, you can't use it in a car or a train, and it murdered your battery. At the time, it was also being phased out of early adopter networks in South Korea (SK Telecom) and Russia (Yota) in favor of LTE. Their early mover advantage didn't make up for the pathetic experience.

Looking Forward: Spectrum, Softbank -

In 2012, Sprint has risen like a battered phoenix. Their market cap at the start of the year was $7B. For what it's worth, most valuations of their spectrum holdings (excluding Clearwire) float around $9B (3). The Nextel spectrum alone clocks in at about $3.5B and more importantly, it's in the 800mhz band.

Since Sprint built a PCS network from the start, their spectrum holdings are HEAVILY skewed towards the higher 1900/2500mhz bands. As a result, any Sprint user that has ever been in a parking garage can attest to the fact that they jump to Verizon every time since they have massive low end spectrum holdings. Once Sprint starts getting rid of the iDEN that nobody is using and converts that 800mhz to CDMA and LTE, every Sprint user will be much better off.

The white knight is Softbank who agreed to pay $20B for a 70% stake in Sprint, and I don't think this is another misstep:

If the new firm can effectively navigate the transition from WiMAX to LTE while making use of the much maligned Clearwire spectrum, Sprint is in a wonderful spot to grow. They've been continuing to close a lot of their traditional discount loopholes, which is surely contributing to churn (if you're wondering why I had them all the bad years I was paying $85/mo for four lines, with texts/data and yearly upgrades), but I expect it to increase revenue over the long term.

Ultimately, it's a matter of making the correct decisions. Sprint already appeared to be on the right path, and Softbank has made their name by being disruptive. They were the first carrier in Japan to carry the iPhone, which was seen by most observers as a device that would suffer the same fate that the Xbox. Instead, it has come to dominate that market too. I, for one, hope that they can disrupt the bell-duopoly.